Change of Direction?

Ferrous scrap recyclers who gathered for the 2013 BIR World Recycling Convention in Shanghai in late May convened while scrap demand and prices seemed to be heading in a troubling downward direction.

As May turned to June, however, some signs of re-emerging demand from steel mills began to appear, which helped firm up prices for purchases made throughout the month.

As of mid-June, concerns that demand was plummeting were allayed in part by increased bidding and purchasing from steel mills in the U.S. and Turkey.

Globally, however, and especially in Europe, scrap generation remains low. Even the improved mood provided by increased steel mill orders in North America and Turkey was offset by a report from the China Iron & Steel Association (CISA) that demand for steel in China was not growing and that prices were dropping.

A steel price index maintained by CISA fell below 100 in June 2013, reaching a low level last hit in the aftermath of the global financial crisis in June 2009.

Speaking at the BIR event, steel industry analyst Peter Marcus of World Steel Dynamics, Englewood Cliffs, N.J., predicted the steel industry will continue to travel a “rutted road” it started out on in 2008 through the rest of this year and into 2014.

Marcus was bearish about ferrous scrap and iron ore pricing during that stretch, declaring “Steel’s iron age is over.” He predicted, however, that raw material costs are on their way to swinging back in favor of scrap as a feedstock, with the pendulum moving in scrap’s favor by 2015.

China’s ferrous scrap reservoir has been building, said Marcus. He forecasted that by 2025 China will have a 145-million-tonnes-per-year ferrous scrap surplus, “given the same EAF (electric arc furnace) steelmaking and BOF (basic oxygen furnace) scrap usage figures.”

Even if China adds EAF capacity and charges more scrap into its BOF mills, Marcus foresees “75 million tonnes of surplus” scrap in China annually by 2025.

Market reports presented at the BIR Ferrous Division meeting offered a mixture of resignation, concern and a few hints of optimism regarding the global market.

Division Chair Christian Rubach of Germany’s TSR Recycling remarked that “economists are starting the discussion [of] whether we are at the end of the commodity super cycle [that] fueled our steel recycling industry for the last [several] years.”

A report submitted by United Kingdom-based Tom Bird of Van Dalen Recycling noted that “prices have continued to weaken during the month [of May], and we could see further reductions for June across the board.”

Bird added, “Like 2012, 2013 is proving to be a difficult year. After a fairly positive start to the year, the market has gradually tightened though April and May.”

Bird did refer to a positive scenario, saying, “If steel demand does recover in the second half of the year, then this will filter into the scrap market with a revival of sorts from mid-June onwards. We should also see a lift after Ramadan [which ends 7 August in 2013].”

BIR Ferrous Division delegate Andrey Moiseenko of Ukrmet Ltd. in the Ukraine, said a mild winter in Russia and the Ukraine has contributed to greater ferrous scrap export potential from the region.

Although Russian steelmakers are struggling with quarterly losses, Moiseenko said, “On the export side the situation this year is not so bad.” He added, “Exporters have not faced any serious logistical problems in the Rostov area, different from last year when due to ice conditions vessels were blocked [in or out] for almost two months.”

Although it was only late May, Moiseenko said Russian steel mills “will [soon] start preparation of winter inventory.” That factor, combined with two new EAF mills coming online in Russia, will likely limit scrap available for export.

Summarizing the U.S. market, Blake Kelley of Sims Metal Management, New York, described declining prices in May and referred to “trade opinion” predicting declines of $10 per tonne or more in June.

Prices for finished hot-rolled coil steel in the U.S., at from $606 to $639 per tonne, are “the lowest since 2010, as steelmakers struggle to maintain order books where lead times are reportedly three-to-four weeks.”

Kelley noted that the world’s steel industry in 2013 continues to produce more steel than ever before and is on pace to produce 1.56 billion tonnes this year—54 million more tonnes than in 2012.

However, because much of the growth is occurring in China, where iron ore-fed basic oxygen furnaces predominate, the world in 2013 will “apparently consume 11 million tonnes less purchased scrap,” according to Kelley.